Bitcoins: The next big thing or flash in the financial pan?

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Move aside almighty dollar, there’s a new type of currency in town: Bitcoins.

Some big names are accepting bit coins like Overstock.com, two Las Vegas casinos and the Sacramento Kings basketball team. Is it the next big thing or a flash in the financial pan?!

At his Loop gallery, Burt Green recently sold two works by artist Jeff Britton including one titled “Factory” for $2,500.

“We take any method of payment,” he said. “Cash, credit cards and bitcoins.”

Green is one of a handful of retailers in the Chicago area who accept bitcoins or cyber currency.

Bitcoins first appeared in 2009. They were created by a mysterious computer programmer named Satoshi Nakamoto, though his real identity is not known. How they work is so confusing there’s even a “Bitcoins for Dummies” lesson on YouTube.

The video explains that Bitcoins are transferred from person to person via the internet without going through a bank or clearing house. Unlike regular currency, there is a limited number of bitcoins in existence: 21 million. It shows you how to buy bitcoins, through exchanges or finding them yourself, which is called mining. Then it shows you what to do once you get bitcoins. They’re basically used as currency or as an investment, similar to gold.! !

Imagine replacing cash with a series of codes on your computer — that’s basically what bitcoins are, cyber money. Some experts are not confident, however, that this would really happen. Among them is University of Chicago’s Professor of Economics Auston Goolsbee.

“I think the general idea of computer-based currency is a very interesting idea, but thus far I’ve seen a lot of stumbles,” Goolsbee said.

Such as its wild fluctuations in price. Take a look at the past 24 months as followed by Bitcoin-Charts.com. One bitcoin cost $13 in December 2012, then took a huge jumpwithin a year and is now in the $900 range.

And that’s happened. Earlier this year, one of the biggest bitcoin exchange operators, Charlie Shrem, was arrested for using his business to launder money for drug sales.

Watching with great interest in all this is a Senior Economist for the Federal Reserve of Chicago. Francois Velde received a lot of attention when he wrote about bitcoins. I

n his position, he can’t really express his opinion on bitcoins but he can predict:

“If bitcoin were really to grow and become widely adopted, my bet is that at some point, there would be pressure on Congress to act, intervene, regulate, control, guarantee, somehow, the currency.”

Almost everyone involved agrees bitcoins need more time to either succeed or fail. Meanwhile, Bitcoin merchants, like Chicago-based Hestia Tobacco, are getting business.

Owner David Sley says he’s made about 20 to 30 bitcoin transactions since Thanksgiving.

Bert Green has one more bit of advice while he waits for his first transaction: “If you’re going to get involved in it, play around with it maybe but only put money in it that you can afford to lose. Certainly not what you need to survive, because right now no one knows where it’s going to go.”

There are about a dozen Bitcoin retailers in the Chicago area and 19,000 worldwide.

11 comments

BTCTalks

While the currency aspects are cool – especially the possibility of micro-payments as witnessed by the Chicago Sun Times this past weekend – the real potential lies in the underlying blockchain protocol thereby allowing individuals to transact via the internet in the absence of trust.